“Following the upward trend of the 10-year Treasury yield, mortgage rates soared this week. Specifically, the 30-year fixed mortgage rate jumped to 3.92% from 3.69% the previous week. This is the highest rate since the end of May 2019. Rapidly rising inflation and expectations that the Fed will raise short-term interest rates as soon as next month are pushing up mortgage rates.
However, these higher rates haven’t impacted the housing market yet. On the contrary, buyers are rushing to lock in lower rates as the outlook is for even higher mortgage rates in the following months. According to the Mortgage Bankers Association, mortgage applications increased by 4.3% during January despite rising mortgage rates. This implies that people were rushing to benefit from low mortgage rates before rates will rise even further. NAR will release the Existing-Home Sales estimates for January tomorrow morning. Typically, homebuying activity slows down in the first month of the year. Thus, if the data shows that activity was higher in January compared to December, this will be another indicator that rising rates are making people rush to benefit from current rates.
Meanwhile, even with this increase in rates, purchasing a home is a great investment. In addition to the other benefits of homeownership, the equity that homebuyers will build in 2022 due to price appreciation will be higher than their mortgage payment. For example, if they buy a home today with a value of $350,000, the mortgage payment is about $1,485 every month. Nevertheless, assuming home prices will rise by 6% in 2022, they can accumulate about $1,750 on average every month in equity due to price appreciation.”